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Powell signals rate hikes will continue

KEEPING PACE:While the Fed chair gave a positive view of the US economy, he also said no significant increase in inflation is expected, making faster rate increases unlikely

AP, WASHINGTON

Members of labor advocate group Fed Up hold a meeting outside Jackson Lake Lodge in Jackson Hole, Wyoming, on Thursday, on the eve of the Kansas City Federal Reserve Bank’s annual economic symposium.

Photo: Reuters

US Federal Reserve Chairman Jerome Powell on Friday signaled that he expects the Fed to continue gradually raising interest rates if the US economic expansion remains strong.

Powell added that while annual inflation has risen to near the Fed’s 2 percent target rate, it is not likely to accelerate above that point.

That suggests that he does not foresee a need for the Fed to step up its rate hikes.

Next month, the Fed is widely expected to resume raising rates.

Speaking to the annual meeting of central bankers in Jackson Hole, Wyoming, Powell said that the Fed recognizes the need to strike a careful balance between its mandates of maximizing employment and keeping price increases stable.

A gradual approach to rate hikes is the best way to navigate between the risks of raising rates too fast and “needlessly shortening the expansion,” and moving too slowly and risking an overheated economy.

“My colleagues and I are carefully monitoring incoming data, and we are setting policy to do what monetary policy can do to support continued growth, a strong labor market and inflation near 2 percent,” Powell said.

Powell sketched a positive picture of the US economy and said that the Fed’s incremental approach to raising rates has so far succeeded.

“The economy is strong,” he said. “Inflation is near our 2 percent objective and most people who want a job are finding one. We are setting policy to do what monetary policy can do to support continued growth, a strong labor market and inflation near 2 percent.”

At the same time, Powell said that in case of another financial crisis or intensified concern about high inflation, “we will do whatever it takes.”

That echoed a phrase that was used to describe the extraordinary steps that the Fed and other central banks took after the 2008 financial crisis plunged the US and global economies into deep recessions.

Powell made no mention of public criticism from US President Donald Trump, who has said that he is unhappy with the Fed’s rate hikes.

Trump has complained that the Fed’s tightening of credit could threaten the continued strong growth he aims to achieve through the tax cuts enacted late last year, a pullback of regulations and rewriting trade deals to better serve the US.

Although Powell chose not to mention Trump’s criticism, other Fed officials asserted that the president’s complaints about rate hikes would have no effect on their policymaking.

“We have a mandate by law, and we do the best we can to hit the mandate” of maximizing employment and stabilizing prices, St Louis Federal Reserve Bank President James Bullard said on Friday in an interview on CNBC.

In his speech, Powell did not directly address what many analysts see as the most serious threat to the economy: the trade war that Trump has launched with the US’ main trading partners — a conflict that risks depressing US and global economic growth the longer it goes on.

Powell focused his remarks in part on the difficulty that the Fed faces in setting interest-rate policies at a time when the economy seems to be undergoing changes that challenge long-standing beliefs of how low unemployment can fall before it ignites inflationary pressures.

He said there is also much uncertainty over the “neutral” rate of inflation — the point at which the Fed’s policy rate is neither stimulating economic growth nor holding it back.

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